VisionIAS - Video Classroom Lecture

Economics Class 02

BRIEF OVERVIEW OF THE PREVIOUS CLASS (9:07 AM)

Central Sector Scheme:

Central Sector Schemes (CSS) are fully funded and controlled by the Central Government.
The state governments do not share the cost of these schemes.

Central Sponsored Scheme:

Central Sponsored Schemes (CSS) are run by both the Central and State Governments.
The Central Government gives a major part of the funds, and states give the rest.

Planning:(09:43 AM)

DEFICITS (09:55 AM)

A deficit in the revenue account reflects that the government does not even have enough money to sustain itself.
For example, it is borrowing merely for its continuation.
As such it is undesirable and was targeted to be eliminated by 2008.
However, in 2011, the government amended the FRBM Act and changed the target to eliminate ERD.
Under this, some expenses which are classified as revenue, but are of the nature of capital expenses are subtracted from the RE to arrive at the ERD.
These are expenses that are transferred to states for the creation of capital assets.

TAXATION (10:10 AM)

Refer to governance material for the division of power between centre and state with respect to financial authorities and responsibilities.
Taxes are imposed by the government under the authority granted to it by the people, expressed through specific laws, the government exercises authority lawfully through various laws that tax specific events.
There are several ways to classify the taxes and the taxation system.

Classification of taxes

1) On the basis of distributive features:
a. Progressive- The rate of tax increases with an increase in income.
The rich pay a greater proportion of their income as taxes. most countries have progressive income tax systems.
b. Proportional- The rate of tax is the same for all (irrespective of income)
c. Regressive- The rate of tax decreases with an increase in income.- The rich, even though pay a greater amount, but a lesser proportion of income as tax.
2) Based on the bearer of burden- Direct vs Indirect
Taxes are collected from the entity on which they were levied. (there may be statutory exceptions like the RCM- Reverse charge mechanism in GST )
In indirect taxes, the entity on whom tax is levied (i.e. collected from) can charge it from somebody else, i.e. the entity that actually bears the burden is not the one on whom tax was levied.
In direct taxes, the entity on whom the tax was levied can not shift the burden to anyone else.

3.)Based on manner of living (10:49 AM)

a. Ad valorem tax (According to value)
The tax is levied in accordance with the value of the event
Ex: Property taxes levied on value, or sales taxes levied on value of goods etc.
b. Specific Tax
Tax is levied on the basis of a feature other than value such as weight or volume.
Ex: Coal is subject to a per tonne tax because of its environmentally damaging properties.
Similarly, popular tourists destinations charged a per person tax from hotels.
4) Based on the event
Taxes are imposed by the government (authority) on certain events, and are commonly named after them.
For further details please refer to PPTs shared by the faculty.

Income Tax Act (11:06 AM)

Capital Gains Tax (11: 37 AM)

Capital Gain Tax is the tax on profit earned from selling assets like land, house, or shares.
It is divided into short-term (if sold within a short period) and long-term (if held for a longer time).
MAT (Minimum Alternate Tax) ensures that companies paying very low or no tax due to exemptions still contribute a minimum tax to the government.

Professional Tax

Indirect Taxes (12:03 PM)

The event could be
a. Production
b. Change of Boundary : levied on entity in possession of goods at the time of event of change of boundary
International Territory (enter into India ) eg: custom duty,
Domestic territory eg: octroi or entry tax
c. Sale (12:25 PM)
Sale of Service
Sale of Goods

TOPIC FOR THE NEXT CLASS: GST